UBS is pitching more ‘blank-check’ companies to rich clients and family offices — and it’s a big shift from how SPACs traditionally raise money

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FILE PHOTO: The logo of Swiss bank UBS at its Zurich headquarters in Switzerland, July 27, 2015. REUTERS/Arnd Wiegmann/File Photo

  • UBS is pitching special purpose acquisition companies — so-called blank-check companies — to its massive wealth-management network. 
  • Jeff Mortara, head of ECM origination at UBS, told Business Insider that SPACs offer a good counter-balance to the long-term, illiquid alternative investments high-net-worth clients and family offices typically allocate to.
  • The Swiss bank will bring a SPAC to market with as much as a 20% retail investor base.
  • SPACs have exploded in recent years with 2020 — already at $7.6 billion — on pace to break 2019’s record $13.6 billion raised via SPACs. 
  • Click here for more BI Prime stories.

UBS is tapping its wealthy clients to help seed and invest in so-called black-check companies, a bank executive told Business Insider. 

The Swiss bank, whose US-based advisers manage $1.2 trillion, has been pitching special-purpose acquisition companies, or SPACs, to its high-net worth clients and family offices over the past seven months. 

The trend is a departure from how SPACs — entities with no commercial operations that raise money and IPO with the intention of acquiring a company — traditionally raise money.

While most SPACs rely on Wall Street investors, allocating only around 3-5% of the initial raise to retail investors, UBS is leaning much more heavily on its wealth clients. Jeff Mortara, head of ECM origination at UBS, told Business Insider the Swiss bank will bring a SPAC to market with as much as a 20% retail investor base.

“As wealthy investors looking for alpha, we think our wealth clients are ideal holders of SPACs and as such our private wealth network is a tremendous potential opportunity for us to enhance our investment banking,” Mortara said. 

Pitching SPACs as a counter to alternative investments

Mortara, who spent nearly two decades at Deutsche Bank before joining UBS in 2016, said he immediately recognized the opportunity the Swiss bank’s wealth-management business offered for SPACs. 

UBS wealth-management clients, which he categorized as those with at least $10 million in assets, are sophisticated enough to pursue returns via more complicated investment vehicles. 

And unlike private-equity type deals that tended to be longer term and less liquid, SPACs have a two-year time frame where an acquisition has to be made or the money is returned to the investors. 

That type of optionality makes them an ideal investment opportunity, he said.

“The redemption feature on the back end of the SPAC at the time of business combination gives them a put, so to speak, on the deal as well,” Mortara said. “So they can play for the alpha if they like the deal. If they don’t like it, they can put it and get their money back.”

While UBS has been handling SPACs for years, the bank began tapping its massive wealth-management network in early 2019 for potential sponsors of the deals. Sponsors initiate the process of setting up SPACs by providing the initial investment and, in the case of individuals, typically have experience running larger companies.   

By the fall of 2019 the business would evolve again, as UBS began pitching SPACs as an investment opportunity to its wealthy customers.  

“Our SPAC sponsors that come through our wealth network tell us, ‘People with similar investment resources and goals as me should want to invest with me. I’m putting my money in. We’re going to make this work,'” Mortara said. “That’s been a recurring theme, and we get great receptivity to it in the channel.”

Part of the pitch is that investing in a SPAC also means access to equity issuance that many retail investors wouldn’t typically have access to in traditional IPO allocations, Mortara said. 

Both Draft Kings and Virgin Galactic recently became public companies by merging with SPACs.  

The stream of SPACs won’t stop anytime soon

Ramping up to meet demand for new investment opportunities has been top of mind at UBS. Business Insider recently reported on an internal memo penned by some of the bank’s executives detailing plans to pitch private investments to ultra-high-net-worth and family office clients. 

Investors targeting the cannabis industry have also been turning to SPACs to chase down cannabis deals. Most traditional investors, like pension-backed venture capital or private-equity firms, are reticent to invest in the cannabis industry since cannabis is federally illegal in the US.

And even amidst the coronavirus pandemic, SPACs remain a viable investment opportunity. While traditional IPOs have, for the most part, been put on hold due to market volatility, SPACs continue to list.

According to data from SPACInsider, there have been 25 SPAC IPOs this year totalling $7.6 billion. That puts this year on pace to surpass 2019’s record-high of $13.6 billion raised. 

Mortara also doesn’t see UBS slowing down anytime soon.

“I think continuing just to build the stronger bridges and communication channels between the investment bank and the private wealth is a great opportunity for us,” he added. “I think we’re stretching the capability at the edges now and we’ll grow into it. 

SEE ALSO: UBS is rolling out the red carpet for ultra-rich people and family offices who want in on private-market deals

SEE ALSO: The vehicle DraftKings used to go public has caught the eye of cannabis investors, who have poured nearly $3 billion into ‘blank check’ money

SEE ALSO: Family offices oversee trillions in wealth and are highly secretive. But that’s changing as they chase direct deals — and company execs want to know who’s behind the money.

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